Gross profit increased 6% to $224.8 million. Gross profit margin decreased 30 basis points to 32.9% from 33.2%. The margin decline was largely due to the increase in shipping and handling promotions but was partially offset by increases in product margins.
Adjusted EBITDA increased 6% to $84.0 million compared to $79.5 million in the prior year driven by the growth in net sales. Operating income increased 7% to $74.7 million compared to $70.0 million in the prior year.
Cornerstone Segment Results for the Fourth Quarter 2012
Net sales for Cornerstone for the 13-week period increased 6% to $299.1 million compared to the 14-week period in 2011. Excluding the incremental sales from the additional week in 2011, net sales increased 12% led by the addition of Chasing Fireflies to the portfolio and sales growth in the home brands. Digital sales grew 14% with penetration increasing 500 basis points to 68.2%. Shipping and handling revenue decreased 3% primarily due to an increase in shipping and handling promotions. The return rate decreased 140 basis points to 12.8% from 14.2% primarily due to changes in product mix and quality assurance initiatives.
Gross profit margin was 37.8%, a decrease of 100 basis points primarily due to the increase in shipping and handling promotions. Operating expenses (excluding non-cash charges) were 30.2% of net sales, an improvement of 30 basis points. As a result, Adjusted EBITDA decreased 3% to $22.6 million. Operating income increased 11% to $18.1 million. The increase in operating income was due to a decrease in stock-based compensation expense.
Liquidity and Capital Resources
As of December 31, 2012, HSNi had cash and cash equivalents of $222.1 million compared to $381.8 million at December 31, 2011. Net cash provided by operating activities in the year ended December 31, 2012 was $147.4 million compared to $165.4 million in the prior year.
Effective February 13, 2013, HSNi's board of directors approved a quarterly cash dividend of $0.18 per share payable March 20, 2013 to shareholders of record as of March 6, 2013.